With wholesale energy prices improving, fixed tariff energy deals are starting to make a comeback.
Over the past few years (since the energy crisis began), fixed energy tariffs have been less common, and for a while weren’t available at all. Lots of energy customers are now on standard variable tariffs (SVT) instead. This means their energy prices change with Ofgem's energy price cap.
Here’s all the essential information about fixed tariffs, the benefits and how they compare to the SVT, so you can be clued up when it comes to picking your next energy tariff.
- What is an energy tariff?
- What's a fixed energy tariff (Plus pros and cons)
- What's a variable energy tariff (plus pros and cons)
- What's the standard variable tariff?
- Unlimited Energy vs. Capped energy
- Fixed vs. Variable energy tariffs
What is an energy tariff?
An energy tariff is the way an energy provider charges a customer for their gas and electricity usage. The two most common types of tariffs are fixed and variable rates.
Which one you choose depends on:
- How much peace of mind you want over the price you pay
- How often you want to switch providers or tariffs
What is a fixed energy tariff?
With a fixed-rate tariff, the price of your energy is set for a period of time. This means that the unit rates and standing charge will stay the same for the length of your contract. Fixed rates are a great way to budget, because you know what you’ll pay for your energy for the length of your contract. And rates are sometimes (but not always) lower than those on a SVT energy deal.
Fixed-rate tariffs disappeared for a little while during the energy crisis, but fixed deals are beginning to make a return due to the energy markets improving.
Here's a quick summary:
What are the benefits of a fixed energy tariff?
- In a stable energy market, they're usually cheaper than a supplier's default variable rate.
- It's easier to budget, because the cost of your energy remains the same, even if the price cap changes.
- If there's another energy crisis and prices go up, your cost per unit won't be affected by price increases until the end of your contract.
What are the downsides of a fixed energy tariff?
- You usually need to pay an exit fee if you leave your contract early.
- Once you sign up for a fixed energy tariff, if the cost of energy falls, you won't benefit from cheaper bills.
- You won't be protected by Ofgem's energy price cap. Customers with fixed-rate tariffs during the energy crisis were paying more for their energy bills compared to those with variable tariffs.
What is a variable energy tariff?
As a standard variable tariff (SVT) customer, your prices will fluctuate with the energy price cap, which is based on the energy market. If prices decrease, you will save money by paying less. But, you'll pay more when they go up.
Energy suppliers have standard variable tariffs as their default pricing plan. So, if you were on a fixed-rate contract and that came to an end, they'd usually automatically roll you onto their SVT.
Here's a quick summary:
What are the benefits of a variable energy tariff?
- There are no early exit fees; you can usually switch suppliers or plans without having to pay a penny.
- Most of the time, a rolling energy deal, like One Utility Bill's, will use a variable tariff.
- If energy prices fall, your energy bills will be cheaper.
- Variable tariffs are protected by Ofgem's energy price cap. So, if energy prices go up, your supplier has a limit on how much they can raise your prices.
What are the downsides of a variable energy tariff?
- They can be more expensive than a fixed-rate tariff when the energy market is stable.
- If energy prices increase, so will your bills.
- Payments can go up and down, making budgeting difficult.
What's the standard variable tariff?
The energy price cap sets a limit on the amount energy suppliers can charge customers for their standard variable tariff. The energy regulator, Ofgem, sets it every three months. The next pricing update will be announced on January 1st, 2024.
The price caps per unit of gas and electricity are currently (late November 2023):
- £0.28 per kWh of electricity, and 53p daily standing charge
- £0.07 per KWh of gas, 30p daily standing charge.
That puts annual bills for a typical household at £1834 a year. However, suppliers will charge customers per unit, so everybody's bills will look different depending on how much power they use.
The pricing of the standard variable tariff was changed when the price cap was introduced in January 2019 by regulator Ofgem. This was because there was concern that people were paying too much for their energy. The cap limits the maximum amount that energy suppliers can charge you for each unit of energy you use.
The price cap is currently reviewed every three months and limits the amount a supplier can charge for their default tariff. This includes:
- The standard charge
- The unit price of electricity and gas
Information from leading energy analyst Cornwall Insight predicts that the price cap will increase slightly, by about 3.5%. This number was reported on 29th Sept 2023 and is likely to change.
Why do energy prices affect which tariffs are available?
Before the energy crisis, you could pick and choose a tariff to suit your budget and needs.
Fixed-rate deals tended to be cheaper than the standard variable alternatives and were often used as a way for suppliers to compete for new customers.
However, when energy costs rose significantly, fixed-rate deals became unavailable as suppliers withdrew them from the market.
What type of energy deals are there, and which kind is best for me?
There are tons of utility suppliers offering so many different tariffs, deals, and packages. It can be difficult to know what you're signing up for, let alone what's best for you!
Let's break it down so you know exactly what people are offering, what you get for your money, and what's a good deal for you.
Unlimited Energy deal vs capped energy deal
An Unlimited Energy tariff is what it sounds like: unlimited usage!
- You pay the same price every month and can use all the gas and electricity you need.
- If you've got a mobile contract with unlimited data, calls, and messages, you already know how this works. There's no surprise bill later because everything is covered in one monthly payment.
- You can get a fixed or a variable tariff, depending on whether you want a fixed contract or the flexibility of a rolling tariff.
A capped package is the standard offering you'll get from any energy company.
- Your monthly payment is calculated based on an estimate using the typical usage for a household of your size.
- If your meter readings show you've used more power than your supplier estimated, you'll need to pay the extra at the end of your contract.
- To go back to mobile contract comparisons, this is like a pay as you got contract. You get a super cheap offer, but maybe only 1GB of data, which doesn't always last very long.
- A cheaper initial price doesn't mean you're going to get what you need.
Fixed vs variable energy tariffs
- When you choose a fixed, capped tariff from a traditional energy supplier, the unit rate (kWh) and standing charge cost will stay the same throughout your contract.
- This doesn't mean the direct debit price you're quoted is all you pay.
- Unlike Unlimited Energy packages, if you use more energy than your fixed price, you get higher monthly bills, or a bill for over use at the end of your contract.
- A fixed tariff protects you from energy price increases.
- This is particularly good news during an energy crisis when energy costs are unpredictable.
- If Ofgem lowers the energy price cap to less than what you pay, you won’t see the benefit. And, you have less flexibility because exit fees usually apply if you end your contract before the agreed date.
- Get a quote from One Utility Bill, and choose between a fixed or variable tariff
The standard variable tariff means that your bills will change after the quarterly Ofgem energy price cap announcement. This means that even if you use the same amount of energy, you’d pay more each month.
You do get more flexibility with a variable tariff, because you can switch to another supplier or energy deal more easily, and it could be easier for you to take advantage of lower prices,
Check out One Utility Bill's fixed tariff:
Your fixed energy price will be set for 12 months, and your gas and electricity prices will not change for the duration of your plan.
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